Domenico Dolce and Stefano Gabbana, Milan fashion week's kings of bling, can make anything look glamorous – even the usually rather downbeat business of closing a 26-year-old fashion label.

Thursday's D&G catwalk show, right, was as ever a carnival parade of bouncy, youthful glamour. D&G is the younger sister label to Dolce & Gabbana, and the D&G aesthetic has always appeared to be aimed at a woman with the taste of a cheerleader and the bank balance of a CEO.

An illuminated chequerboard of silk scarf prints lit up the backdrop to the catwalk, so that the models high-stepping to hectic remixes of Prince and James Brown appeared like crazed, colourful brides walking down the aisle of a cathedral to fashion.

But, minutes after the designers took their smiling catwalk bow, and just as the audience filed out into the Milanese sunshine, a statement appeared in the inboxes of the show attendees informing them that Dolce and Gabbana are shutting the cheaper D&G label in order to concentrate on their main collection.

It was a very D&G ending. A wistful swansong in the catwalk tradition (rose petal confetti, operatic soundtrack, crocodile tears) would not have been appropriate; true to its brand, D&G went down smiling. In any case, the designers are keen to portray the decision as a positive one, rather than a defeat. "We are going through a very happy moment of our lives," the statement began. "From the upcoming seasons, D&G will become part of Dolce & Gabbana, giving even more strength and energy to our collections."

The folding of D&G is likely to rattle a domestic fashion industry still reeling from Italy's credit-rating downgrade by Standard and Poor's. Mario Boselli, chairman of Italy's chamber of fashion, has told Italian designers – many of whom are perennially locked in battle over the most prestigious slots on the fashion week schedule – that they must unite. "This is our chance to react to the crisis," he said at the opening of the Milan shows this week.

But although the closure of D&G has been rumoured since March, many in the industry are puzzled by the move, which does not appear to be a direct result of economic problems. D&G is a profitable brand, which in recent years has outperformed the more expensive Dolce & Gabbana main collection in some important Asian markets.

However, the similarity in the two names has led to confusion among customers, particularly in regions where the labels have only recently launched. Concentrating on one brand, Dolce & Gabbana, will simplify the message being broadcast to those all-important emerging markets. It is expected that the Dolce & Gabbana brand will now expand into more casual categories, such as T-shirts and jeans, where D&G has traditionally been strong.

Backstage at the Miuccia Prada show, Carine Roitfeld, ex-editor of French Vogue, congratulated Prada after her catwalk show. "That was you, on the catwalk, wasn't it?" said Roitfeld. Prada, wearing a black knee-length pleated skirt and a cream blouse, both in the finest silk, smiled and nodded. Behind her, models were stripping off sheer, sugar-almond shaded versions of the same outfit, sometimes embellished with embroidered pansies, or layered with delicate duster coats, and handing long, sparkling earrings back to their dressers. Roitfeld leant out a hand to touch Prada's long, sparkling earrings. "I could tell, because of these." Prada, who collects fine vintage jewellery, has a phenomenal collection of earrings.

Editors and buyers who rushed to offer congratulations and interpretations were not so well received. When one powerful and influential editor suggested there had been a Fifties Americana theme – there were Greased Lightning cars and silk bomber jackets on the catwalk – the designer frowned and shook her head. "No. This was not Fifties. And it was not America."

She can be an awkward customer. But then, she would probably take that as a compliment, because she is the woman who made awkward chic. She has taken the edgy and alternative, the frumpish and bluestocking elements of style and elevated the look from the bars of arthouse cinemas to the windows of every major department store in the world.

The "intellectual concept" for this collection, the designer said, was "the problem of sweetness. Sweetness is one of the great qualities of womankind, but in the modern world you have to be tough and aggressive to be a woman. Sweetness is a modern taboo." If the concept was sweetness and the modern woman, the "joke" of the collection, as she put it, was "women and cars. The things men like." It was also, she said, "the things I like. Classic Prada. The cliches of what it is to be a woman."

The pastel palette and the 1950s references are in step with the mood of next summer, and the emphasis on separates, which Prada said "was how women dress now" struck a chord with buyers. Averyl Oates, buying director for Harvey Nichols, predicted this would be a sellable Prada season because "the story she tells is so strong. But when you get to the store, there are so many individual pieces a woman can pick out, that suit the person she is."